Bigger isn’t better for showbiz mergers

Time Warner, AOL disprove 'Godzilla' notion

“SIZE MATTERS,” blared the cheekily suggestive marketing slogan for “Godzilla,” Sony’s 1998 reboot of the monster franchise, which turned out to be a disaster in all the wrong ways.

But does size matter?

William Morris and Endeavor thought so, responding to a toughening climate for talent agencies by finally consummating their lengthy flirtation, bulking up to battle CAA and gain leverage in their dealings with the studios. Yet while there’s considerable logic behind that move, the under-told story of the last decade has pivoted on the limited benefits of synergy amid a period reshaped by technological change, as well as conglomeration’s frequently unintended consequences.

In some instances, size has its obvious advantages. Yet the only real constant beyond change has been that bigger doesn’t automatically mean better.

Time Warner and AOL are still busy unraveling the merger they announced in 2000, which was quickly billed as the creation of a “digital media powerhouse.” By 2005, even one of the mega-marriage’s architects, former AOL co-founder Steve Case, was calling the union a bad idea in hindsight.

“When the merger was announced, analysts believed that Time Warner’s music, movies and magazines along with its cable systems would speed up AOL’s transition from phone dial-up to broadband, and that AOL’s Internet mentality would accelerate growth at Time Warner,” Case wrote in the Washington Post. “Neither has occurred.”

Loosely translated, this would be the corporate-speak equivalent of “Whoops.”

WHILE FEW transactions did more to render showbiz stock options worthless, AOL-Time Warner is by no means alone. Tribune’s Times Mirror acquisition was supposed to unlock synergies by combining the two entities’ newspapers and TV stations in Chicago, L.A. and New York. Today, Sam Zell’s reeling Waterloo is operating under bankruptcy protection.

Similarly, both CBS and News Corp. lobbied to expand the reach of their station groups by relaxing federal ownership caps, just as Clear Channel capitalized on radio deregulation. Yet the one-time cash cow known as local broadcasting is springing leaks all over.

Even the seemingly can’t-miss strategic value of shared studio-network parentage — made possible by the 1990s elimination of the financial interest and syndication rules — has prompted reconsideration. Insiders say some of the major networks are newly eager to order more programs from outside suppliers, cognizant of the fact that while hits continue to yield ancillary returns, producing failures for themselves (which happens more often than not) represents a double whammy to their financial bottom line.

Given today’s breakneck pace, there’s also a potential cost in the uncertainty created by undertaking major business combinations. Rivals, for example, immediately began pecking away at the new WME while the agency sorts out who stays and goes.

Of course, the alternative to getting bigger hasn’t necessarily worked out, either. Sumner Redstone’s capricious decision to split CBS from Viacom weakened both entities, and has prompted each to exhaust resources launching new ventures (CBS’ film unit, Viacom’s start-up movie network) to replace key assets (Paramount, Showtime) that they lost in the divorce.

THE ONE MOGUL who apparently remains unflaggingly committed to synergy is News Corp.’s Rupert Murdoch, enduring losses with his newspaper properties — and the associated grumbling from stockholders and Wall Street — for the prestige they bestow on his other holdings (or maybe just because he likes having them).

In what should be an interesting test of whether digital-age TV-print synergy is genuinely possible, former Fox News Channel exec John Moody has been tasked to “harness the power of News Corp.’s vast editorial resources” by coordinating the “company-wide sharing of news content.” It’s an interesting idea, but based on recent history, the News Corp.-level job sounds about as inviting as herding cats.

Variations of that “Size matters” slogan do regularly appear on TV, albeit without much of “Godzilla’s” subtlety. Mostly, they show in latenight penile-enlargement ads running on cable networks in a desperate attempt to gin up revenue — about as good a metaphor as there is to demonstrate the fallout from a flaccid economy.

So while becoming bigger can still pay off, that’s hardly a foregone conclusion anymore. That’s because lately, size doesn’t always count for as much as being smarter, more nimble, and just plain luckier.

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